<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
Commission File Number: 0-22325
ALYDAAR SOFTWARE CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 87-0399301
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 Rexford Road, Suite 250 West Charlotte, NC 28211
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
704-365-2324
(Registrants telephone number, including are code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the proceeding 12 months (or for
such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of November 12, 1997, there were 17,255,576 shares of Alydaar Software
Corporation common stock, $0.001 par value, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Page 3 Consolidated Balance Sheets
Page 4 Consolidated Statements of Operations (Unaudited)
Page 5 Consolidated Statements of Cash Flows (Unaudited)
Page 6 Notes to Unaudited Consolidated Financial Statements
<PAGE>
ALYDAAR SOFTWWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,293,448 $ 379,382 $ 289,218
Accounts receivable 3,160,923 187,500 --
Notes receivable -- 490,000 --
Loans receivable, officers 134,556 51,256 51,256
Other 83,023 6,903 4,143
------------ ------------ ------------
TOTAL CURRENT ASSETS 5,671,950 1,115,041 344,617
PROPERTY & EQUIPMENT, NET 2,817,461 1,694,029 523,217
SECURITY DEPOSITS 126,975 60,222 48,222
GOODWILL, NET 6,430,142 -- --
============ ============ ============
TOTAL ASSETS $ 15,046,528 $ 2,869,292 $ 916,056
============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued
expenses $ 1,424,329 $ 2,184,435 $ 354,036
Unearned revenue
-- 150,000 --
Current portion of capital lease
obligations 20,998 -- --
Loans payable, officers
-- 507,530 3,980
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,445,327 2,841,965 358,016
CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 103,943 -- --
------------ ------------ ------------
TOTAL LIABILITIES 1,549,270 2,841,965 358,016
------------ ------------ ------------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
20,000,000 authorized, 17,695,576,
13,983,282 and 12,348,373
shares issued & outstanding, 17,696 13,983 12,348
respectively
Additional paid-in capital 27,392,425 6,311,079 3,626,142
Deficit (13,930,973) (6,296,940) (3,080,050)
Translation adjustment 18,550 -- --
------------ ------------ ------------
13,497,698 28,122 558,440
Treasury stock 440,000, 795,000
and 400,000 shares, respectively (440) (795) (400)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,497,258 27,327 558,040
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 15,046,528 $ 2,869,292 $ 916,056
============ ============ ============
</TABLE>
3
<PAGE>
ALYDAAR SOFTWARE CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96
------------- ------------- ------------- --------------
<S> <C> <C>
Revenues $ 2,258,570 $ - $ 4,566,839 $ -
Operating Expenses
Payroll and related costs 2,975,586 484,850 9,369,319 1,006,186
Depreciation & amortization 195,223 49,342 455,329 76,472
Other operating expenses 1,273,215 370,488 2,403,611 843,841
------------- ------------- ------------- --------------
Total Operating Expenses 4,444,024 904,678 12,228,269 1,926,499
------------- ------------- ------------- --------------
Operating Loss (2,185,454) (904,678) (7,661,420) $ (1,926,499)
Other Income 14,411 8,212 27,386 10,546
------------- ------------- ------------- --------------
Net Loss $ (2,171,043) $ (896,466) $(7,634,034) $ (1,915,953)
============= ============= ============= ==============
Loss Per Share $ (0.13) $ (0.08) $ (0.51) $ (0.16)
============= ============= ============= ==============
Weighted Average Number of Shares 16,756,291 11,898,373 15,056,501 11,710,698
============= ============= ============= ==============
/TABLE>
4
<PAGE>
ALYDAAR SOFTWARE CORPORATION AND SUBSIDIARY
Consolidated Statement of Cash Flows (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/97 9/30/96
<S> <C> <C>
Cash Flows From Operations
Net loss $ (7,634,034) $ (1,915,953)
Depreciation 455,329 76,472
Stock based compensation 100,000 51,900
(Increase) Decrease in:
Accounts receivable (2,382,791) -
Other current assets (76,120) -
Increase (Decrease) in:
Accounts payable & accrued expenses (1,713,486) 104,683
Unearned revenues (150,000) -
---------------- ----------------
Net Cash From Operations (11,401,102) (1,682,898)
---------------- ----------------
Cash Flows From Investing Activities:
Purchase of property & equipment (1,389,953) (544,671)
Notes receivable 490,000 -
Increase in security deposits (66,753) (40,516)
Net Cash Flows From Investing --------------- -----------------
Activities (966,706) (585,187)
--------------- -----------------
Cash Flows From Financing Activities
Issuance of stock 14,787,114 2,542,233
Net advances to/repayments of loans from officers (507,530) (10,365)
Payments on capital lease obligation (20,162) -
Other 976 -
Net Cash Flows From Financing --------------- ---------------
Activities 14,260,398 2,531,868
--------------- ---------------
Effect of Exchange Rate Changes on
Cash --------------- ---------------
21,476 -
--------------- ---------------
Net Increase In Cash 1,914,066 263,783
Cash, @ Beginning of Period 379,382 25,435
--------------- ----------------
Cash, @ End of Period $ 2,293,448 $ 289,218
--------------- ----------------
Supplemental Disclosures
Interest paid $ 23,150 $ -
--------------- ----------------
Equipment acquired under capital leases $ 89,938 $ -
--------------- ----------------
Stock Issued for notes receivables $ 83,300 $ -
--------------- ----------------
</TABLE>
Subsidiary acquired July 1, 1997, by Issuance of Company common stock valued at
$6,115,000 at the time of issuance plus the assumption of approximately $100,000
of net payables and forgiveness of a $300,000 Note receivable.
<PAGE>
ALYDAAR SOFTWARE CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim unaudited financial statements as of September 30,
1997 and 1996 and for the three-and nine-month periods then ended,
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods presented. All adjustments were of a normal recurring
nature.
2. The Company acquired a 100% interest in Alydaar International, PLC
during the third quarter of 1997. Accordingly, the Company's
financial statements include the accounts of Alydaar
International, PLC from the date of acquisition of that subsidiary
(July 1, 1997). All significant intercompany transactions and
accounts have been eliminated as part of the consolidation of the
financial information. This combination is accounted for as a
purchase as required under APB 16. The following pro forma
information on results of operations is computed as if the
acquisition occurred from the date of inception for Alydaar
International, PLC, January 2, 1997:
<TABLE>
<CAPTION>
---------------------------------------- --------------------------- -------------------------
3 MONTHS ENDED 9 MONTHS ENDED
---------------------------------------- --------------------------- -------------------------
9/30/97 9/30/97
---------------------------------------- --------------------------- -------------------------
<S> <C> <C>
Revenues $ 2,258,570 $ 4,648,939
---------------------------------------- --------------------------- -------------------------
Net Loss ($ 2,171,043) ($ 9,279,323)
---------------------------------------- --------------------------- -------------------------
Net Loss Per Share ($ 0.13) ($ 0.60)
---------------------------------------- --------------------------- -------------------------
</TABLE>
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
Alydaar Software Corporation's principal liquid resources, comprising
cash and trade receivables, increased $4.9 million from December 31, 1996 to
September 30, 1997. This increase was caused primarily as a result of cash from
sales of stock and receivables generated by operations primarily in the third
quarter. Working capital totaled $4.2 million at September 30, 1997, as compared
with negative working capital of $1.7 million at December 31, 1996. The
significant improvement was due to $14.8 million raised from sales of stock and
exercise of warrants and an increase in receivables of $2.47 million resulting
from revenue generated by operations primarily in the third quarter.
RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS 1997 COMPARED WITH THIRD
QUARTER AND NINE MONTHS 1996:
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
The results for the three- and nine-month periods ended September 30,
1997 and 1996 are not comparable due to the following:
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
-------------- --------------
------------------ ------------------- ------------------- -----------------
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
----------------------- ------------------ ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Avg. # Employees 300 50 230 18
----------------------- ------------------ ------------------- ------------------- -----------------
Avg. Space Occupied 62K sq.ft. 18K sq.ft. 52K sq.ft 13K sq.ft
----------------------- ------------------ ------------------- ------------------- -----------------
Revenues $2.26 million -0- $4.57 million -0-
----------------------- ------------------ ------------------- ------------------- -----------------
Total Assets $15.05 million $0.9 million $15.05 million $0.9 million
----------------------- ------------------ ------------------- ------------------- -----------------
</TABLE>
In addition to increases in expenses related to the changes in average
number of employees and space occupied, third quarter 1997 expenses reflect
increased advertising costs, increased travel expenses for a sales force which
grew from two in June, 1997, to twenty-two by the end of August, 1997, and the
costs associated with opening an additional ten sales offices.
Alydaar Software Corporation ("Company") was essentially a research and
development company until the end of the first quarter, 1997. At that time, the
Company began working on billable pilots and contract awards.
The Company continued to experience a very slow flow of code from its
customers to the Company during the third quarter, which resulted in revenues of
only $2.26 million for the third quarter 1997. The slow flow of code was
primarily due to a lack of packaging skills by both the customer and the
Company. The steps the Company has taken to accelerate the flow of code were
discussed in the Form 10 Q for the second quarter, 1997. The Company's
projections forecast that favorable results from those actions will be reflected
in fourth quarter results, when the Company projects revenues accelerating to
$6-$8 million and a profitable fourth quarter.
OTHER ANALYSIS:
ACQUISITION
As of July 1, 1997, the Company acquired 100% of the shares of Alydaar
International, plc, a London-based company, for stock of the Company, assumption
of net liabilities and forgiveness of debt for a total value of approximately
$6.5 million. The Company had no equity interest in Alydaar International prior
to the acquisition. The acquisition has been accounted for as a purchase
transaction. Based upon the potential sales contracts of Alydaar International,
PLC at the date of acquisition, the Company's projections forecast that Alydaar
International, PLC could add at least $.50 and $1.00 earnings per share for 1998
and 1999, respectively. Since acquisition, the
7
<PAGE>
Company has started work for five new customers through Alydaar
International, PLC's operations and it projects that at least $2 million in
revenues from those customers will be recorded in the fourth quarter, 1997.
Except for historical information, the matters discussed above that may
be considered forward-looking statements may be subject to certain risks and
uncertainties that could cause the actual results to differ materially from
those projected, including uncertainties in the market, pricing, competition,
procurement, production efficiencies and customers meeting their contractual
obligations.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
During the third quarter, one of the two lawsuits described in
Footnote 11 to the December 31, 1996 financial statements was settled with no
settlement cost for the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11. Computation of Earnings Per Share...Unaudited
27. Financial Data Schedule
(b) Reports on Form 8-K:
Current report on Form 8-K dated on September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ALYDAAR SOFTWARE CORPORATION
(Registrant)
Date: November 12, 1997 /s/V. Hollis Scott
----------------- V. Hollis Scott,
Chief Financial Officer
Date: November 12, 1997 /s/Michael Racaniello
----------------- Michael Racaniello,
Controller
<PAGE>
EXHIBIT 6 a) 11 )
ALYDAAR SOFTWARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
Primary (Loss) Per Three Three Six Six
Share: Months Months Months Months
Ended Ended Ended Ended
09-30-97 09-30-96 09-30-97 09-30-96
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (Loss) ($2,171,043) ($896,466) ($7,634,034) ($1,915,903)
-----------------------------------------------------------------------------------
Avg Number Shares
Outstanding
16,756,291 11,898,373 15,056,501 11,710,698
-----------------------------------------------------------------------------------
Primary (Loss) Per
Share ($0.13) ($0.08) ($0.51) ($0.16)
-----------------------------------------------------------------------------------
==============================================================
</TABLE>
Fully diluted loss per shares is anti-dilutive and, accordingly, is not
presented.
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,293
<SECURITIES> 0
<RECEIVABLES> 3,161
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,672
<PP&E> 3,508
<DEPRECIATION> 691
<TOTAL-ASSETS> 15,047
<CURRENT-LIABILITIES> 1,445
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 13,479
<TOTAL-LIABILITY-AND-EQUITY> 15,047
<SALES> 2,259
<TOTAL-REVENUES> 2,259
<CGS> 0
<TOTAL-COSTS> 4,444
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> (2,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,171)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
